A rollercoaster ride, but keep the faith in Lombard
ALASTAIR Brown is a man on a mission. Appointed as chief executive of Lombard Risk Management in December 2015, he is determined to make the business a market leader in the provision of software to banks and insurers. If he succeeds, Lombard shares should rise considerably from their current 7¾p.
Midas tipped the shares in June 2011 at 7p. The stock rose to more than 15p by March 2015 before the company issued a profit warning, chief executive and founder John Wisbey resigned and the board was restructured.
Under Brown’s stewardship, Lombard has been streamlined, focused and placed in a strong position to deliver substantial growth.
The firm spent many years developing a range of technology products for the financial services industry. But as a relatively small business, it spread itself too thin. Now Brown is focusing on two products – one of which, Colline, helps banks and insurers to trade financial derivatives, while the other, Agile Reporter helps them to file the right documentation for regulators globally.
On the derivatives front, regulation has been severely tightened up since the financial crisis, so firms can only trade them if they can prove that their balance sheets are strong. Calculations are complex and change all the time, so they need expert software to support them. Many use their own technology, but this is often slower and far less efficient than Colline.
To date, 70 firms use Colline, ranging from small fund managers to international banks, but over the next few years the number of customers should rise substantially. All financial firms have to have software in place to manage derivatives trading and Colline is considered the best in the market.
There is also real potential for Agile Reporter. Filing the correct documentation to regulators is mandatory for banks and insurers and again, Agile is faster and more cost-effective than old, in-house systems.
Lombard already has 250 customers for Agile, but recently signed an agreement with Oracle under which the US software giant will offer Agile as part of a package of products that it sells to financial firms globally.
This should boost Lombard’s revenues significantly, particularly as Oracle has 500 bank customers already, which will now be offered Agile.
Lombard raised £8million on the stock market in June, partly to fund investment in Agile and Colline, but also to help set up a software development centre in Birmingham.
The company’s technology work had largely been outsourced to Shanghai. Brown is bringing most of it back to the UK because there are lots of good people here; Birmingham is closer to customers than Shanghai; and Chinese offices are no longer a cheap option.
Sales are expected to jump by 35 per cent to £32million in the year to March 31, 2017, though the company is not expected to make a profit. In the year to March 2018, however, brokers forecast sales of £40million with profits of £1.8million, rising rapidly in subsequent years.
Midas verdict: Investors who bought these shares five years ago have had a rollercoaster ride, but the company should deliver strong, sustainable growth from here and the stock should respond. Existing investors should keep the faith. New investors could also snap up some of these shares.